Is Home Insurance Tax Deductible in Canada?
Your home is one of your most valuable assets; however, it is also one of the most expensive. From the initial down payment and mortgage payments to property taxes and general upkeep, the costs can add up quite quickly.
As tax season draws nearer, many homeowners are looking for ways to lower their taxable income and save money through tax deductions. Your accountant may ask you to draw up a list of expenses that are tax deductive. As a homeowner in Canada, one of the many expenses you will have is home insurance. This raises the question, “Is home insurance deductible in Canada?”
What Is a Tax Deduction?
A tax deduction is an item that can be subtracted from a person or organization’s taxable income in order to lower the amount of taxes they owe. These deductions are, however, only applicable to certain qualifying expenses from throughout the tax year.
The Canadian Revenue Agency (CRA) outlines more than 400 tax deductions and credits. Even though tax deductions and tax credits both help you improve your tax outcome, they are actually different from one another.
As mentioned above, a tax deduction is an amount subtracted from your total income to make your taxable income lower. An example of a tax deduction in Canada would be self-employed business expenses.
A tax credit, on the other hand, is an amount that lowers the tax you pay on your taxable income. Some of these credits are refundable, while others are not.
1. A non-refundable tax credit is used to reduce your tax payable to zero, for example, a charitable contribution. Refunds cannot be claimed on these credits.
2. An example of a refundable tax credit is the GST/HST credit (Goods and Services/ Harmonized Sales Tax Credit), a refundable sales tax issued outside your income tax return. Refunds will be made when refundable tax credits exceed the amount of taxes due or when deductions have reduced the amount of taxes owed to zero.
Is Home Insurance Tax Deductible?
As a homeowner in Canada, you more than likely have home insurance. While it’s not legally required, many mortgage lenders require homeowners to obtain a home insurance policy before they approve the loan.
So, can you deduct home insurance from your taxable income in Canada? The short answer is it depends. In general, if you use your home as a home and do not derive any income from it, then your expenses (including your insurance premiums) are not tax deductible. While you cannot deduct home insurance from your personal taxes, if you meet certain criteria, there are some deductions you may qualify for.
The three most common instances where homeowners can use their insurance as a tax deduction include:
1. If you rent out your home
2. Having a home-based business
3. Using a portion of your home as an office
It is best to contact a tax professional to verify how much you will be able to deduct. For instance, you should be able to write off the full cost of your premiums as a business expense if you just own property for investment purposes. This said, the tax advantage will vary based on which circumstance applies to you, and there is specific information you will need to provide in order to claim your home insurance as a tax deduction, such as proof of the amounts you have paid for the home insurance policy.
Ideally, it is best to keep an electronic record of your policy (if you cannot find a copy, your insurance provider or broker should be able to help you obtain one). Whether or not you are required to include proof of home insurance costs with your tax return, keeping a record of all expenses in case of an audit by the CRA is still a good idea.
Claiming Homeowners Insurance for a Home Office as an Employee
Remote work has become increasingly popular over the past few years, and many home office expenses are tax deductive. However, when it comes to deducting your home insurance from your taxable income, you must meet one of the following conditions to qualify:
1. Your home office must be exclusively for working
2. More than 50% of your work must be completed in that space
Are There Tax Deductibles for Landlords?
Renting out your home, or a part of your home, essentially makes you a landlord, and as such, you can claim income and expenses relating to your rental property, including your home insurance.
Other than insurance, some of the other expenses that landlords may be able to claim for tax deductions include rent collected from tenants, rental income from the previous year, utilities (heating, hydro, water), mortgage insurance, advertising, interest, bank charges, repairs, maintenance, management and administrative fees, travel, and property taxes – to name a few.
When you deduct your home insurance on your income tax return, as a landlord, you will use form T776. It is important to ensure you are only deducting coverage for the current year. Since some policies last longer than a year, you may need to calculate the portion of your home insurance policy (and its corresponding cost) that applies only to the current year.
Find the Right Home Insurance to Protect Your Most Valued Assets
Protecting your home from liability and damage from external factors should be a priority, whether it is a rental property, a home office, or simply your place of residence. Zippo Insurance offers quick and easy, personalized quotes in under 5 minutes, with some of the most competitive rates in Ontario.
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